Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, it and Productivity

We examine the impact of Chinese import competition on broad measures of technical change—patenting, IT, and TFP—using new panel data across twelve European countries from 1996 to 2007. In particular, we establish that the absolute volume of innovation increases within the firms most affected by Chinese imports in their output markets. We correct for endogeneity using the removal of product-specific quotas following China's entry into the World Trade Organization in 2001. Chinese import competition led to increased technical change within firms and reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and account for 14% of European technology upgrading over 2000–7 (and even more when we allow for offshoring to China). Rising Chinese import competition also led to falls in employment and the share of unskilled workers. In contrast to low-wage nations like China, developed countries had no significant effect on innovation.

[1]  Gordon H. Hanson,et al.  Untangling Trade and Technology: Evidence from Local Labour Markets , 2013, SSRN Electronic Journal.

[2]  P. Romer,et al.  A Trapped-Factors Model of Innovation † , 2013 .

[3]  Gordon H. Hanson,et al.  The China Syndrome: Local Labor Market Effects of Import Competition in the United States , 2012, SSRN Electronic Journal.

[4]  A. Khandelwal,et al.  Import Competition and Quality Upgrading , 2009, Review of Economics and Statistics.

[5]  S. Atif.  Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages' , 2012 .

[6]  Ligang Song.  China’s Growing Role in World Trade , 2012 .

[7]  Peter K. Schott,et al.  Concording U.S. Harmonized System Codes over Time , 2012 .

[8]  Rembert De Blander,et al.  Mostly Harmless Econometrics: An Empiricist's Companion , 2011 .

[9]  C.-Y. Cynthia Lin,et al.  Measuring the social rate of return to R&D in coal, petroleum and nuclear manufacturing: A study of the OECD countries , 2011 .

[10]  P. Bustos.  Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms , 2011 .

[11]  Chang-tai Hsieh,et al.  A Global View of Productivity Growth in China , 2016 .

[12]  A. Levchenko,et al.  The Evolution of Comparative Advantage: Measurement and Welfare Implications , 2011 .

[13]  John J. Stevens,et al.  An Alternative Theory of the Plant Size Distribution with an Application to Trade , 2010 .

[14]  Andrew B. Bernard,et al.  Multiple-Product Firms and Product Switching , 2010 .

[15]  John Van Reenen,et al.  Why Do Management Practices Differ across Firms and Countries , 2010 .

[16]  A. Khandelwal,et al.  Multiproduct Firms and Product Turnover in the Developing World: Evidence from India , 2010, The Review of Economics and Statistics.

[17]  Sharon Belenzon,et al.  Innovation in Business Groups , 2007, Manag. Sci..

[18]  A. Atkeson,et al.  Innovation, Firm Dynamics, and International Trade , 2007, Journal of Political Economy.

[19]  Kensuke Teshima.  Import Competition and Innovation at the Plant Level: Evidence from Mexico , 2010 .

[20]  Timothy Dunne,et al.  Does Foreign Competition Spur Productivity? Evidence From Post WWII U.S. Cement Manufacturing , 2010 .

[21]  Costas Arkolakis,et al.  New Trade Models, Same Old Gains? , 2009 .

[22]  J. V. Reenen,et al.  The Organization of Firms Across Countries , 2009 .

[23]  J. Haltiwanger,et al.  Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia , 2009 .

[24]  Christian M. Broda,et al.  The Welfare Implications of Rising Price Dispersion , 2009 .

[25]  Raphael A. Auer,et al.  The Effect of Low-Wage Import Competition on U.S. Inflationary Pressure , 2010 .

[26]  Joshua D. Angrist,et al.  Mostly Harmless Econometrics: An Empiricist's Companion , 2008 .

[27]  A. Khandelwal,et al.  Imported Intermediate Inputs and Domestic Product Growth: Evidence from India , 2008 .

[28]  L. Iacovone,et al.  Multi-Product Exporters: Diversification and Micro-Level Dynamics , 2008 .

[29]  W. Keller,et al.  Estimating the Productivity Selection and Technology Spillover Effects of Imports , 2008 .

[30]  Zhi Wang,et al.  How Much of Chinese Exports is Really Made in China? Assessing Domestic Value-Added When Processing Trade is Pervasive , 2008 .

[31]  Kalina B. Manova,et al.  China's Exporters and Importers: Firms, Products, and Trade Partners , 2008 .

[32]  C. Freund,et al.  The Anatomy of China's Export Growth , 2008 .

[33]  Peter J. Klenow,et al.  Endogenous Variety and the Gains from Trade , 2022 .

[34]  Paul Krugman,et al.  Trade and Wages, Reconsidered , 2008 .

[35]  James A. Schmitz,et al.  Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions , 2008 .

[36]  A. Khandelwal.  The Long and Short (of) Quality Ladders , 2009 .

[37]  Ann P. Bartel,et al.  How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills , 2007 .

[38]  Jan De Loecker,et al.  Do exports generate higher productivity? Evidence from Slovenia , 2007 .

[39]  Peter K. Schott,et al.  China's Experience Under the Multifiber Arrangement (Mfa) and the Agreement on Textiles and Clothing (Atc) , 2007 .

[40]  Daniel Trefler,et al.  Improved Access to Foreign Markets Raises Plant-Level Productivity ... For Some Plants , 2007 .

[41]  Gadi Barlevy,et al.  On the Cyclicality of Research and Development , 2007 .

[42]  E. Verhoogen.  Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector: Theory and Evidence from an Exchange Rate Shock , 2004 .

[43]  Peter J. Klenow,et al.  Misallocation and Manufacturing TFP in China and India , 2007 .

[44]  Jan De Loecker,et al.  Product Differentiation, Multi-Product Firms and Estimating the Impact of Trade Liberalization on Productivity , 2007 .

[45]  P. Goldberg,et al.  Distributional Effects of Globalization in Developing Countries , 2007 .

[46]  Mark J. Roberts,et al.  Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity , 2007 .

[47]  P. Bustos.  Multilateral Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms , 2007 .

[48]  E. Helpman,et al.  The Dynamics of Firm-Level Adjustment to Trade Liberalization , 2007 .

[49]  Paul Beaudry,et al.  Federal Reserve Bank of San Francisco Working Paper Series Endogenous Skill Bias in Technology Adoption: City-level Evidence from the It Revolution Endogenous Skill Bias in Technology Adoption: City-level Evidence from the It Revolution , 2022 .

[50]  Peter K. Schott,et al.  Multi-Product Firms and Product Switching , 2006 .

[51]  Megan J. MacGarvie.  Do Firms Learn from International Trade? , 2006, Review of Economics and Statistics.

[52]  D. Acemoglu.  Equilibrium Bias of Technology , 2005 .

[53]  Jozef Konings,et al.  Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia , 2005, SSRN Electronic Journal.

[54]  A. Cameron,et al.  Microeconometrics: Methods and Applications , 2005 .

[55]  M. Kleiner,et al.  The Last American Shoe Manufacturers: Decreasing Productivity and Increasing Profits in the Shift from Piece Rates to Continuous Flow Production , 2005 .

[56]  R. Feenstra,et al.  World Trade Flows: 1962-2000 , 2005 .

[57]  S. Yeaple.  A simple model of firm heterogeneity, international trade, and wages , 2005 .

[58]  T. Vogel,et al.  Endogenous skill bias , 2004 .

[59]  R. Blundell,et al.  Changes in the Distribution of Male and Female Wages Accounting for Employment Composition Using Bounds , 2004, SSRN Electronic Journal.

[60]  Peter K. Schott,et al.  NBER WORKING PAPER SERIES COMPARATIVE ADVANTAGE AND HETEROGENEOUS FIRMS , 2004 .

[61]  X. Vives.  Innovation and Competitive Pressure , 2004 .

[62]  Marianne Bertrand.  From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship , 1999, Journal of Labor Economics.

[63]  Hierry,et al.  A Theory of Defensive Skill-Biased Innovation and Globalization , 2004 .

[64]  Andrew B. Bernard,et al.  Facing the Dragon: Prospects for U.S. Manufacturers in the Coming Decade ♦ , 2004 .

[65]  E. Brynjolfsson,et al.  Computing Productivity: Firm-Level Evidence , 2003, Review of Economics and Statistics.

[66]  F. Vega-Redondo.  The Evolution of Comparative Advantage , 2003 .

[67]  Peter K. Schott,et al.  Survival of the best fit: exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants , 2003 .

[68]  Jonathan Eaton,et al.  Technology, Geography, and Trade , 2002 .

[69]  R. Griffith,et al.  Do R&D Tax Credits Work? , 2002 .

[70]  Thierry Verdier,et al.  A Theory of Defensive Skill-Based Innovation and Globalization , 2002 .

[71]  Jonathan Eaton,et al.  Technology, trade, and growth: A unified framework , 2001 .

[72]  Michael Raith,et al.  Competition, Risk and Managerial Incentives , 2001 .

[73]  David Card,et al.  Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration , 1997, Journal of Labor Economics.

[74]  Nina Pavcnik,et al.  Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants , 2000 .

[75]  Bo E. Honoré,et al.  Panel Data Discrete Choice Models with Lagged Dependent Variables , 2000 .

[76]  D. Acemoglu.  Technical Change, Inequality, and the Labor Market , 2000 .

[77]  J. V. Reenen,et al.  Another Nail in the Coffin? Or Can the Trade Based Explanation of Changing Skill Structures Be Resurrected? , 1999 .

[78]  Jonathan Eaton,et al.  International Technology Diffusion: Theory and Measurement , 1999 .

[79]  Robert C. Feenstra,et al.  The Impact of Outsourcing and High-Technology Capital on Wages: Estimates For the United States, 1979–1990 , 1999 .

[80]  R. Blundell,et al.  Market share, market value and innovation in a panel of British manufacturing firms , 1999 .

[81]  Stephen Machin,et al.  Technology and Changes in Skill Structure: Evidence from Seven OECD Countries , 1998 .

[82]  J. Haltiwanger,et al.  Aggregate Productivity Growth: Lessons from Microeconomic Evidence , 1998 .

[83]  C. Manski,et al.  Monotone Instrumental Variables with an Application to the Returns to Schooling , 1998 .

[84]  Stephen Machin,et al.  Implications of Skill-Biased Technological Change , 1998 .

[85]  Ekaterini Kyriazidou,et al.  Estimation of a Panel Data Sample Selection Model , 1997 .

[86]  J. Bound,et al.  IMPLICATIONS OF SKILL-BIASED TECHNOLOGICAL CHANGE: INTERNATIONAL EVIDENCE* ELI BERMAN , 1998 .

[87]  Klaus M. Schmidt.  Managerial Incentives and Product Market Competition , 1997 .

[88]  Lawrence F. Katz,et al.  Computing Inequality: Have Computers Changed the Labor Market? , 1997 .

[89]  A. Krueger.  Labor Market Shifts and the Price Puzzle Revisited , 1997 .

[90]  S. Nickell.  Competition and Corporate Performance , 1996, Journal of Political Economy.

[91]  Stephen Machin,et al.  Technology and Changes in Skill Structure: Evidence from an International Panel of Industries , 1996 .

[92]  Lawrence F. Katz,et al.  Searching for the Effect of Immigration on the Labor Market , 1996 .

[93]  Richard B. Freeman,et al.  Are Your Wages Set in Beijing , 1995 .

[94]  Jeffrey M. Wooldridge,et al.  Selection corrections for panel data models under conditional mean independence assumptions , 1995 .

[95]  A. Wood,et al.  North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World , 1994 .

[96]  Earl V. Anderson,et al.  FREE TRADE AGREEMENT , 1993 .

[97]  Elhanan Helpman,et al.  International R&D spillovers , 1995 .

[98]  Z. Griliches,et al.  Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing , 1993 .

[99]  Hugo Hopenhayn.  Entry, exit, and firm dynamics in long run equilibrium , 1992 .

[100]  Zvi Griliches,et al.  The Inconsistency of Common Scale Estimators When Output Prices are Unobserved and Engogenous , 1992 .

[101]  A. Pakes,et al.  The Dynamics of Productivity in the Telecommunications Equipment Industry , 1992 .

[102]  G. Grossman,et al.  Innovation and growth in the global economy , 1993 .

[103]  Steven J. Davis,et al.  Gross Job Creation, Gross Job Destruction and Employment Reallocation , 1991 .

[104]  P. Romer,et al.  Economic Integration and Endogenous Growth , 1990 .

[105]  Charles F. Manski,et al.  The Selection Problem , 1990 .

[106]  Elhanan Helpman,et al.  Quality Ladders and Product Cycles , 1989 .

[107]  Wesley M. Cohen,et al.  Empirical studies of innovation and market structure , 1989 .

[108]  Alan B. Krueger,et al.  EFFICIENCY WAGES AND THE INTER-INDUSTRY WAGE STRUCTURE , 1988 .

[109]  Z. Griliches,et al.  Econometric Models for Count Data with an Application to the Patents-R&D Relationship , 1984 .

[110]  Cheng Hsiao,et al.  Formulation and estimation of dynamic models using panel data , 1982 .

[111]  Cheng Hsiao,et al.  Estimation of Dynamic Models with Error Components , 1981 .

[112]  P. Krugman.  Scale Economies, Product Differentiation, and the Pattern of Trade , 1980 .

[113]  Paul Krugman,et al.  A Model of Innovation, Technology Transfer, and the World Distribution of Income , 1979, Journal of Political Economy.

[114]  Jacob Schmookler,et al.  Invention and Economic Growth , 1967 .

[115]  A. Williamon,et al.  Observations , 1966, Performing Music Research.

[116]  K. Arrow.  The Economic Implications of Learning by Doing , 1962 .